Managing Money : Helping Soldiers Cope With Financial Matters
There are tremendous anxieties involved in being in the military or being a spouse of a military member, especially now that the nation has gone to war. Some of those concerns are financial.
Many reservists, for example, find their incomes cut substantially when called to active duty. And yet expenses often continue to mount.
Although some large companies are supplementing reserve pay--at least for a time--other firms only guarantee that reservists will have comparable jobs when they return.
For those who find active duty a financial hardship, there is some relief thanks to a little-known law called the Soldiers’ and Sailors’ Civil Relief Act of 1940.
This law requires banks and other lenders--including credit card-issuing retailers--to cut interest payments on existing credit card, mortgage and other consumer debts to only 6% for military personnel on active duty.
In some cases, civil lawsuits can be forestalled and leases can be broken too. And Congress will soon weigh the benefits of increasing these protections to limit the ability of apartment owners to evict active-duty service members--and their spouses--when they are unable to make rent payments.
Moreover, many of California’s biggest lenders have initiated plans to offer further financial aid for service members and their spouses during the Persian Gulf crisis.
For example, Wells Fargo Bank and Bank of America are eliminating interest accruals and payment requirements for the period of active service.
In other words, if you have loans with these banks and have been called to active duty, you do not need to make your monthly mortgage payments. You don’t need to pay on your credit cards. And you need not worry about interest accruing at double-digit rates. At these banks, interest will not accrue at all. It is as if time stops.
Other banks, including Los Angeles-based First Interstate, will continue to accrue interest charges, but at the lower 6% rate. First Interstate will also allow service members to temporarily suspend payments.
There are some caveats.
The Soldiers’ and Sailors’ Civil Relief Act only applies to financial obligations that were entered into before going on active duty. If you or your spouse run up large credit card debts after military service has started, you are generally in the same position as every other borrower.
Some banks profess to be lenient with all debts incurred by active service members, but they are the exception. They are under no legal obligation to reduce interest charges on newly incurred bills.
In addition, you need to notify the bank that you have been called to active duty and would like to apply for interest rate relief and/or payment deferrals. (In many cases, banks will allow spouses or parents to apply for the service member.) The government does not do this for you, and lenders are fully within their rights to charge the old, higher rates until they get the paperwork.
Moreover, neither the banks nor the law provides protection to spouses who have separate accounts. In other words, couples who have separate credit cards will find that the interest charged on the service member’s account can be reduced, while the spouses’ account continues at the old rates.
Details of loan agreements also need to be checked when applying for loan deferrals. Some lenders will extend loan terms to account for the time the loan payments were on hold--in other words, instead of having the whole amount due on Dec. 31, it would be due June 31 for someone who spent six months on active duty--others will not. You need to know whether you will be expected to make up for lost time when payments resume.
By and large, however, companies maintain that they will be exceptionally accommodating even to those who do not exactly fit the parameters of their new policies. If, for example, a mortgage loan is in the spouse’s name but requires the income of both the service member and spouse to make payments, talk to the lender. Several said they would deal with such problems on a case-by-case basis.
Other companies--particularly those providing phone, gas and electric service--said they would also work with financially strapped service members and their spouses.
“We are aware that circumstances are difficult and changing, and we stand ready to help,” said Kate Jacobs, spokeswoman for Pacific Bell.
Generally speaking, utility companies will not allow you to suspend payments, but they will work out payment plans in which smaller amounts can be sent in each month.
Kathy M. Kristof welcomes comments and suggestions for columns but regrets that she cannot respond individually to letters and phone calls. Write to Kathy M. Kristof, Personal Finance, Los Angeles Times, Times Mirror Square, Los Angeles, Calif. 90053.
